San Francisco Business Times - Friday, February 10, 2012
Buyer and developer builds S.F. portfolio
Premium content from San Francisco Business Times by J.K. Dineen, Reporter
Date: Friday, February 10, 2012, 3:00am PST - Last Modified: Friday, February 10, 2012, 10:00am PST
“Our tenants run the gamut of what is San Francisco,” says Prado CEO Dan Safier.
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J.K. DineenReporter - San Francisco Business TimesEmail | Twitter
San Francisco has plenty of developers who build housing and no shortage of investors who acquire and operate large apartment portfolios. Prado Group is shaping up to be a rare hybrid of both.
Over the last few years, the privately held San Francisco company and its partners have become one of the city’s most active multi-family buyers, acquiring 1,100 apartments across San Francisco. In early February the group paid approximately $27.8 million for 2130 Post St., a 67-unit, 100,000-square-foot apartment building previously owned by the University of the Pacific ’s Arthur A. Dugoni School of Dentistry. A week before that, Prado scooped up two properties in the Lower Polk neighborhood totaling 99 units, an $11 million acquisition. Those two deals followed a $61.4 million, nine-building, 327-unit portfolio purchase in September 2011 from the lender JE Roberts and one private investor, and a $34.5 million, 156-unit portfolio purchased in June 2011 from Tribeca Cos.
As it builds up its portfolio, Prado Group has been adding to its workforce as well, growing to 42 employees from about 20 a year ago.
Meanwhile, Prado Group will start construction this spring on three San Francisco projects.
In April, the group will begin work on 1266-1270 9th Ave. in the Sunset District, a 15-unit project with a 3,000-square-foot retail space on the ground floor that has been leased to La Boulange Cafe and Bakery. Also around the first of April, it aims to break ground on 2001 Market St. at Dolores Street, an 80-unit development with a Whole Foods on the ground floor. Webcor is the contractor on that project. Dan Safier, Prado’s president, said his firm is finalizing financing. “It’s in the sweet spot of what lenders like right now — a multi-family rental project in a great gateway city like San Francisco and 40 percent of the income is from Whole Foods, a high-quality, credit grocery anchor.”
Finally, demolition has already started for the Trader Joe’s Prado is building at California and Hyde streets. The 14,000-square-foot project, which also includes a CVS drug story, will replace a Cala Foods that closed last year.
Safier said Prado is not interested in building just for the wealthy or just for tech workers or empty nesters, but for all San Franciscans. Prado’s offerings range from a $700 efficiency in the Tenderloin to a $7,000 a month, two-bedroom, two-bathroom penthouse on Nob Hill. “Our tenants run the gamut of what is San Francisco — we cater to a very broad spectrum of residents that mirror the diversity of our city,” said Safier.
Prado has seen about 9 to 10 percent annual rental growth in its apartment portfolio. With the trend of baby-boomers and Generation Yers flooding cities in search of jobs, culture and pedestrian-friendly urban environments, rents in San Francisco should continue to rise, he said.
“The economy seems to be improving, the creation of jobs in the city has helped — and we don’t see any signs that job formation is slowing down,” he said. “There is no doubt we are at the early stages of a vibrant market cycle — we need to make sure our policies are in line with helping to meet demand on the office and residential side.”
But just in case, Prado is conservative in terms of pro formas and financing. Each transaction is funded separately.
“We tend to finance our properties like a pension fund would finance their properties,” Safier said. “A lot of our investors are endowments and pension funds and trusts and they don’t like to see leverage either.”
Webcor CEO Andy Ball called the start of construction at 2001 Market St. “a long time in coming.”
“Prado Group tends to wants to focus on a smaller number of very high-quality projects and Dan is personally involved with every aspect of the project and tends to know everyone involved,” said Ball. “He is a very savvy, hands-on, relationship guy.”
After a decade in which the Lembi empire amassed an empire of 10,000 housing units, the Prado Group and other investors like Russell Flynn are out to prove that you can be a larger owner in San Francisco without flouting rent control laws. “As these buildings have traded hands they have gone into the hands of some very responsible landlords,” said Safier.
J.K. Dineen covers real estate for the San Francisco Business Times.